GAAP - GFS Harmonisation Project

Project Summary

AASB GAAP/GFS HARMONISATION PROJECT

(Last Updated: 3 August 2010)

The staff of the AASB have prepared this summary for information purposes only. The Board decisions described are tentative and do not change current accounting pronouncements unless otherwise indicated. Official positions of the AASB are determined only after extensive due process and deliberations. While this summary is occasionally updated, it does not provide a comprehensive review or statement of events and should not be treated as such.

Project Outline
Outcomes To Date and Major Board Decisions
Next Steps
Contact Information
Board Minutes/Action Alerts
References

PROJECT OUTLINE

In response to concerns about the potential confusion that arises from statisticians/economists and accountants both applying accrual principles but reporting different results for the same public sector entity, the Financial Reporting Council (FRC) issued a direction for the AASB to pursue, as an urgent priority, the harmonisation of Government Finance Statistics (GFS) and Generally Accepted Accounting Principles (GAAP) reporting. Therefore, the objective of this project is to develop requirements for a single set of financial reports that are auditable, comparable between jurisdictions, and in which the outcome statements are directly comparable with the relevant budget statements.

The scope of the project is divided into two phases:

Phase 1: Financial reporting requirements for the Australian Government and State and Territory governments and the sectors therein [General Government Sector (GGS), Public Non-Financial Corporations (PNFC) sector and Public Financial Corporations (PFC) sector]; and
Phase 2: Financial reporting requirements for entities within the GGS including government departments.

The AASB decided that it is not necessary to consider GAAP/GFS harmonisation issues for other public sector entities, including entities within the PNFC sector and PFC sector, local governments and entities that GFS classifies as multi-jurisdictional, such as universities.

At its 8 December 2006 meeting, the FRC agreed that, with the completion of Phase 1 and Phase 2, the requirements of the public sector direction would be met.

OUTCOMES TO DATE AND MAJOR BOARD DECISIONS

Phase 1: GGS financial reporting and Whole of government financial reporting, incorporating GGS, PNFC and PFC sectors

Exposure Draft ED 142 Financial Reporting of General Government Sectors by Governments was issued in July 2005 for comment by 21 October 2005.

The Board received 20 submissions on ED 142, which it considered between February and September 2006. During this process the Board continued to consult with key constituents. Details of decisions made in relation to the specific issues relating to separate GGS financial reporting are available in the Board Minutes.

In September 2006, AASB 1049 Financial Reporting of General Government Sectors by Governments was issued, which has subsequently been superseded by AASB 1049 Whole of Government and General Government Sector Financial Reporting, as noted below.

ED 155 Financial Reporting by Whole of Governments and Supplement to ED 155 Financial Reporting by Whole of Governments - Illustrative Example were issued in May/June 2007 for comment by 17 August 2007.

The Board received five submissions on ED 155 and the supplement, which it considered at its September 2007 meeting.

Although ED 155 focused only on whole of government requirements, the Board decided to develop an integrated standard that specifies GAAP/GFS harmonisation requirements for both GGS and whole of governments (including sectors) financial reporting. Accordingly, the Board issued AASB 1049 Whole of Government and General Government Sector Financial Reporting in October 2007, which is operative for annual reporting periods beginning on or after 1 July 2008, with early adoption allowed.

At its 21-22 May 2008 meeting the Board approved an Exposure Draft ED 163 Proposed Amendments to AASB 1049 for Consistency with AASB 101 for a Standard to update AASB 1049 for the changes in AASB 101 Presentation of Financial Statements (issued September 2007). The changes relate primarily to new terminology and to the requirement to prepare a ‘statement of changes in equity’.

The Board received two submissions on ED 163, which it considered at its 24 September 2008 meeting. The Board made AASB 2008-9 Amendments to AASB 1049 for Consistency with AASB 101, which is applicable to annual reporting periods beginning on or after 1 January 2009. Early adoption is permitted provided AASB 101 (September 2007) is applied at the same time.

At its 17-18 March 2010 meeting the Board considered a draft project plan for undertaking a post-implementation review of AASB 1049 Whole of Government and General Government Sector Financial Reporting, noting that the focus of the review is on implementation experience at an operational level rather than a review of the fundamentals of the Standard.

At its 30 July 2010 meeting the Board considered a list of implementation issues relating to AASB 1049 and noted that the post-implementation review work to date has not identified any major flaws in the Standard. However, some areas for potential improvement, including clarifying some of the requirements, were identified. The Board decided those potential improvements should be included in an Exposure Draft and issued for public comment. Subject to other priorities, the Board decided that the aim should be to issue any amendments to AASB 1049 before the end of 2010.

Details of decisions made in relation to the specific issues relating to Phase 1 are available in the Board Minutes.

Phase 2: Entities within the GGS

At its 21-22 May 2008 meeting the Board commenced its consideration of specific issues relating to the extension of GAAP/GFS harmonisation principles to entities within the GGS of the Australian Government and the State and Territory Governments and tentatively decided that the broad principles of harmonisation currently applicable to GGSs and whole of governments through AASB 1049 should be applied to not-for-profit entities within the GGS. This would mean, for example, that financial reports of not-for-profit entities within the GGS should be prepared on a GAAP basis, modified particularly from a presentation and disclosure perspective to accommodate harmonisation with GFS.

At its 24 September 2008 meeting, the Board reconsidered its May 2008 decisions in the light of a letter from Heads of Treasuries. The letter further identified some of the practical implications of applying AASB 1049 to entities within the GGS. The Board concluded that a different approach to the way in which AASB 1049 achieves harmonisation could be justified on the grounds of relevance of information to users of entities-within-the-GGS financial statements.

At its 17-18 December 2008 meeting, the Board considered a draft Exposure Draft EDXX Amendments to Australian Accounting Standards to facilitate GAAP/GFS Harmonisation for Entities within the GGS [AASBs 101, 107 and 1052]. The Board approved the ED for issue, subject to it being amended to reflect the Board’s decisions.

Exposure Draft ED 174 Amendments to Australian Accounting Standards to facilitate GAAP/GFS Harmonisation for Entities within the GGS [AASBs 101, 107 and 1052] was issued for public comment on 14 January 2009 with a four-month comment period. The comment period closed on 19 May 2009.

Following the issue of ED 174, a draft illustrative example Supplement to Exposure Draft
ED 174 Amendments to Australian Accounting Standards to facilitate GAAP/GFS Harmonisation for Entities within the GGS [AASBs 101, 107 and 1052] was issued on 8 April 2009 for comment also by 19 May 2009. The draft Illustrative Example, accompanied by an AASB staff note, reflected a possible format of financial statements for entities within the GGS under ED 174 proposals. The Supplement was developed with the assistance of the HoTARAC GFS/GAAP Harmonisation Working Group.

The AASB held Roundtables in Melbourne (7 May 2009) and Canberra (8 May 2009) to discuss the specific matters for comment included in ED 174 and the Supplement.

The AASB received thirteen written submissions on ED 174 and the Supplement.

At its June 2009 meeting, the Board discussed the responses to ED 174 and the Supplement. As a result, the Board expressed a preference not to proceed with Phase 2 of the project on the grounds that imposing GAAP/GFS harmonisation requirements in the manner proposed in ED 174 would not meet the needs of a broad range of users. The Board decided that its view and the rationale for its view should be outlined in a paper to be provided to FRC members.

A draft paper was considered by the AASB at its July 2009 meeting. The Board decided that the paper should ask the FRC to reconsider its direction in relation to Phase 2 of the GAAP/GFS Harmonisation project, on the basis that the Board has significant reservations about the usefulness of the proposed incorporation of GFS presentation and classifications into the general purpose financial statements of entities within the GGS.

A draft of the AASB’s report to the FRC members was sent to the FRC secretariat to facilitate a teleconference held on 4 September 2009 to discuss the issues. Following the teleconference, an advance copy of a letter (with attachments) from the Department of Finance and Deregulation addressed to the FRC Chairman was provided to the AASB for discussion at its 23-24 September 2009 meeting.

Also at the September AASB meeting, a staff member from the Department of Finance and Deregulation outlined to the Board the Department’s view, as reflected in its letter, of the benefits users of the general purpose financial statements of entities within the GGS might derive if the Board were to issue GAAP/GFS harmonisation requirements based on the proposals in ED 174. The AASB session was for information purposes, and no decisions were made. The AASB also noted that, on 24 September 2009, a letter was delivered to the AASB office from the Minister for Finance and Deregulation expressing views consistent with the views conveyed to the Board by the Department’s staff member.

At its October and December 2009 meetings and its February 2010 meeting, the Board reviewed the arguments for and against proceeding with GAAP/GFS harmonisation for entities within the GGS based on the proposals in ED 174, and discussed alternative ways to proceed.

At its February 2010 meeting, the Board considered alternative approaches that might overcome its reservations about issuing a Standard based on the proposals in ED 174. The Board did not favour a Standard that would specify the financial reporting if a jurisdiction or entity opted for GFS-harmonisation financial reporting at the level of an entity within the GGS. The alternative approach, recommended by staff, was aimed at substantively improving the financial reporting of, and comparability between, entities within the GGS. The Board acknowledged that such a Standard might be justified if its aims can be met. The Board directed staff to further develop its recommendations for the content of a Standard focusing explicitly on improving the usefulness of general purpose financial statements of entities within the GGS, having regard to cost/benefit considerations and the Board’s other projects.

The Board noted that such a Standard would go significantly beyond the proposals of ED 174 and would most likely require further due process through an Exposure Draft if it were to proceed.

At its April 2010 meeting, the Board decided to develop a further ED that adopts GAAP/GFS harmonisation principles to the extent they improve the quality of financial reporting by not-for-profit entities within the GGS. The draft ED will propose and take the form of a stand-alone Standard that incorporates relevant ABS GFS Manual principles. The main proposals will include specifying budgetary reporting requirements; adopting GAAP/GFS harmonisation principles for recognition and measurement in the primary financial statements; and GAAP/GFS harmonisation principles for recognition and measurement and presentation and classification in a note providing information about controlled and administered items.

The Board also noted, at its April meeting, the importance of disaggregated information disclosures and decided that, rather than incorporate proposals into the ED, a separate project should be initiated and given a high priority.

At its 30 July 2010 meeting the Board clarified its intentions in relation to the development of the ED and directed staff to continue developing formats for the proposed note disclosure of GAAP/GFS harmonisation information about controlled and administered items. In addition, the Board directed, staff to prepare, for each alternative, an assessment of whether it would satisfy requirements for the format of the primary financial statements and articulate the rationale for its adoption and the implications for the requirements of AASB 1050 Administered Items.

The Board also decided that the proposed exposure draft should be drafted in a way to minimise, rather than avoid, the need for preparers of financial statements for not-for-profit entities within the GGS to refer to the ABS GFS Manual.

Details of decisions made to-date in relation to the specific issues relating to Phase 2 are available in the Board Minutes.

NEXT STEPS

In relation to Phase 1, staff will incorporate into a draft exposure draft the Board’s decisions relating to improving AASB 1049 based on the findings from the post-implementation review.

In relation to Phase 2, staff will incorporate into a draft exposure draft the Board’s April 2010 decisions, as clarified at the July 2010 meeting.

CONTACT INFORMATION

Project Manager
Robert Keys, Deputy Technical Director
Tel: (03) 9617 7624
Email: rkeys@aasb.gov.au

Support Staff for Phase 1
Latif Oylan, Assistant Project Manager
Tel: (03) 9617 7623
Email: loylan@aasb.gov.au

Support Staff for Phase 2
Emma O’Brien, Graduate Intern
Tel: (03) 9617 7631
Email: eobrien@aasb.gov.au

BOARD MINUTES/ACTION ALERTS

For the Board decisions on the major conceptual and technical issues considered to date, refer to the following extracts of the approved Board minutes/Action Alerts:

2010: Action Alert 30 July; 28-29 April; 17-18 March; 3-4 February.

2009: 9-10 December; 28-29 October; 23-24 September; 29-30 July; 24-25 June; 22 April.

2008: 17-18 December; 24 September; 21-22 May.

2007: 14-15 November; 3-4 October; 5-6 September; 28 June; 23-25 May; 14-15 March; 14-15 February.

2006: 6-7 September; 12-13 July; 7-8 June; 5-6 April; 8 March; 8-10 February.

2005: 9-10 November; 8-9 September; 6-7 July; 8-9 June; 4-5 May; 13-14 April; 9-10 March; 2-3 February.

2004: 8-9 December; 13-14 October; 8-9 September; 14-15 July; 27 May; 12-13 May; 7-8 April.

2003: 10-11 December; 15-16 October; 2-3 September; 16-17 July; 25 June; 28-29 May; 9-10 April; 12-13 February.

2002: Action Alerts are provided in place of the approved Board minutes that had not been made public prior to 2003: 4-5 December; 22-23 October; 7-8 August.

REFERENCES

Selected Board agenda papers made publicly available:

[Note: the following papers are provided as an historical record of the agenda papers made publicly available since 1 January 2007. They have not been updated to reflect subsequent developments or Board deliberations. They do not provide authoritative interpretations of existing pronouncements]

References relating to Phase 1

30 July 2010

17-18 March 2010

24 September 2008

3-4 October 2007